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4 Reasons To Avoid Sysco

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both of things together will help you earn higher than average investment returns and build your wealth.

There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.

The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

Both things are necessary to build wealth. But most only think of investing well. 

Because of this, today I want to show you 4 Reasons To Avoid Sysco.

4 Reasons To Avoid Sysco

  1. It’s Got An Enormous Amount of Debt

As of the most recent quarter Sysco’s (SYY) balance sheet is made up of 90.1% of total liabilities.  And its debt to equity ratio is 5.21.

I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term.  This helps insure I lose as little money as possible over time.

Typically, that means I invest in stocks that have debt to equity ratios below 1.

To put its debt into context, it has $11.5 billion in short term and long-term debt as of this writing.  Against $2.2 billion in cash.  And its market cap is $29.6 billion.

Meaning that its debt is 5.2X its cash.

And its debt makes up 38.9% of its market cap.

But there’s another reason to stay away from Sysco stock.

2. It’s Not Producing Enough Profits and Cash Flow

In the most recent quarterly data Sysco was unprofitable on a gross profit, operating profit, and a net income basis.

This due in large part to negative effects and closures related to the coronavirus… I’ll talk about these in the next section.

In the fourth quarter 2020 fiscal Sysco gross profit fell 47.4% to $1.6 billion.

Operating profit decreased 173.8% to negative $531.6 million from an earlier profit of positive $720 million in the 4th quarter of 2019.

Net income per share fell from positive $2.25 per share in the 4th quarter of 2019 to negative $1.22 per share in the 4th quarter of 2020.

And on top of all this its free cash flow fell 46.7% to $927 million for the full year 2020 compared to $1.74 billion in the full year 2019.

Generally, you want these numbers to be as high as possible on the positive side because that means the company is generating profits and cash flow from its operations.

These show that Sysco is getting crushed in this pandemic… Which gets us to reason #3 to avoid its stock.

3. Uncertainty Related To The Coronavirus

This all circles back to the beginning and the coronavirus.

Air travel, hotels, and restaurants are still getting hammered.

But so are many other industries worldwide.  And food services is one of them…

Especially when your food service company largely delivers to industries that either were or are still shut down due to the coronavirus like Sysco does.

Sysco’s sales were as follows in the most recent quarter…

  • 62% of its food service is done to restaurants
  • 9% of its revenue is to education and government
  • 9% is to tourism and hospitality.

In total, an estimated 80% of its sales are directly to businesses and industries that have seen or are still seeing major shutdowns due to the coronavirus.

This is why its sales decreased 42.7% in the 4th quarter of 2020.  And its also why its gross profits, operating profits, net income, and free cash flow fell so much in the most recent quarter as well.

And this won’t end anytime soon for Sysco.

Cruise ships can’t leave from the US until at least November 1st 2020… Schools are going to be operating at much lower capacity as they’ve begun to open for the school year.  And restaurants are still also seeing much lower traffic.

With its large amount of debt this can cause major issues for the company going forward.

To top things off its also expensive too…

4. Valuation

As of this writing Sysco’s P/E is 138.3.

Its P/CF is 18.4.

And its forward P/E is 22.9.

On all three metrics I look to buy investments below 20 to consider them undervalued.

This shows that Sysco is overvalued by a large margin.

And this means Sysco stock does not offer you a margin of safety in investing terminology.

A margin of safety means you’re buying a safe investment… And this makes the investment riskier.

Right now, there is zero margin of safety in owning Sysco stock due to its large debt load, low profits, issues with the coronavirus, and its overvaluation.

And this makes investing in its stock enormously risky right now.

For these reasons I recommend you stay away from Sysco stock… Even though it is an exclusive Dividend King payer.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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